Diagnostics and situational analysis, and need assessments

There are a number of diagnostic tools available that can be used to identify the challenges and constraints to trade and provide an analysis of the current situation (i.e. establish the current or baseline position, or benchmarking).Some of the diagnostic tools attempt to prioritize the constraints, rather than provide a shopping list of challenges and needs. Diagnostics either feed into needs assessments or are part of a needs assessment. Needs assessments show the gap between the current state of play (baseline) and what we want to achieve. They provide recom-mendations including measures and actions to help overcome the challenges and constraints and take advantage of potential opportunities, informing the design of projects and programmes (UNDP, 2008). There are a range of tools employed in the AfT arena, many of which are outlined below. Some are used in isolation although often the best method is to combine a number of tools.

The methodology employed will vary depending on the specific needs, circumstances and local context, as well as the requirements of different development partners.

Stakeholder consultations: In determining the most important constraints to improving trade performance and the needs on the ground, it is essential to first identify the relevant stakeholders (amongst Government, private sector, civil soci-ety, academia and/or other non-state actors) and undertake consultations to understand the local context and tap into their knowledge, experience and relationships. Consultations build ownership and buy-in for the programme or project and are standard good practice across the project cycle (from needs identification to implementation to assessing progress and evaluation). Building ownership improves the chances of successful implementation of a programme or project.

Consultations can be conducted through, for example, interviews (one-to-one, focus groups, etc.; structured, semi-structured, etc.) as well as through electronic questionnaires. The process should be context-specific with the techniques, methods, approaches, etc. tailored for the local situation and the types of stakeholders being con-sulted. Those most likely to be directly affected or involved in the project should be targeted and consulted in the early stages and throughout as required during the life of the project. The con-sultation process should be two-way so that both sides have the opportunity to exchange views and information. The findings of the consultation process should be reported back in a timely way to those consulted, with clarification of next steps.

It is important to note the potential bias inherent in stakeholder consultations. Even the views of an organization representing a particular stakeholder group (e.g. private sector) can be subjective and not representative of all stakeholders such organi-zations represent (for instance, captured by vested interest). Given their limitations, stakeholder con-sultations should be complemented by other tools (Hallaert and Munro, 2009).

Benchmarking: Benchmarking can help identify the binding constraints through the use of exist-ing indicators. Desk-based compilations of quan-titative indicators (e.g. the World Bank’s Doing Business reports and Logistics Performance Index;

the World Economic Forum Global Enabling Trade Index) can be used to assess and compare per-formance across countries as well as establishing

baselines. The data can also be used to assess determinants of trade performance; Gamberoni and Newfarmer (2009), for example, measure developing countries’ capacity constraints as measured by benchmark indicators and find that these have a strong effect on export performance.

Benchmarking is probably more useful as a con-firmation tool for constraints identified by other methods and/or when used in conjunction with other identification approaches (World Bank, 2013; Hallaert and Munro, 2009).

Figure 2: Prioritization matrices

a) Impact/effort matrix b) Urgent/important matrix

c) Cost/benefit matrix

Diagnostic Trade Integration Studies: These are prepared under the Enhanced Integrated Frame-work (EIF) for individual least developed countries to identify challenges and constraints to trade, competitiveness and export growth. The studies typically focus on: achieving trade expansion and increasing export competitiveness; exploring trade policies, trading opportunities and supply-side constraints (e.g. bottlenecks related to transport and trade facilitation); and analysing the export potential of particular sectors and subsectors. The studies recommend areas for policy intervention and development partner assistance through the development of action and implementation matrices. The studies cover a wide range of areas given the multifaceted nature of trade-related constraints and associated needs. Most studies identify a range of key sectors, subsectors and products believed to have significant export potential. However, they often include a long list of needs that are not prioritized in terms of the most binding constraints to trade and potential impacts.

They are therefore often considered a useful first step that can provide the building blocks for prior-itizing the binding constraints to trade.

Trade and transport toolkits: The World Bank’s Trade and Transport Facilitation Assessment is a toolkit for identifying trade facilitation and logis-tics inefficiencies in global supply chains. It aims to provide an in-depth assessment of the trade supply chain to help identify measures to facilitate trade (World Bank, 2010). It provides a multidimen-sional assessment of the services and processes associated with the movement of products across borders. It includes two phases: 1) providing an understanding of the bottlenecks in infrastructure, regulations, transport and logistics services, and border processes that affect the trade competi-tiveness of the country or region being assessed;

and 2) examines the relative importance of the challenges identified in the first phase, as well as the constraints and needs of specific international supply chains. The assessment provides recom-mendations on policies, measures and actions.

It provides information on where opportunities exist to improve performance along the supply chain and helps inform the design of initiatives to improve logistics performance related to

infra-structure, services, and procedures and processes.

It develops implementable actions beyond just diagnostics. It is conducted through a range of structured interviews with public agencies (cus-toms and other border management agencies, port authorities and transport regulators) and private service providers (freight forwarders, trans-port operators and financial intermediaries).

The World Bank’s Trade Competitiveness Diagnos-tic Toolkit provides a framework, guidelines, and tools to conduct an analysis of trade competitive-ness including identifying the main constraints to improved trade competitiveness and the policy measures to overcome these constraints. It can assess the competitiveness of a country’s exports including specific trade sectors. It includes guid-ance on tools and indicators that can be employed to analyse trade performance (e.g. export growth, trade orientation, export diversification, as well as market and supply-side factors that determine competitiveness). The output of the diagnostic exercises can be used as standalone products or as inputs into, for instance, the formulation of Diagnostic Trade Integration Studies. The toolkit is intended for policymakers and practitioners. It pro-vides a step-by-step guide to conducting diagnos-tics of trade competitiveness including detailed practical information and tools. It has three mod-ules: Trade Outcomes Analysis (indicators and tools); Competitiveness Diagnostics (analytical frameworks, indicators, and interview guides); and Policy Options for Competitiveness and Case Stud-ies. It also presents a scaled-down version of the Trade and Transport Facilitation Assessment called the Trade Facilitation and Logistics Assessment with the aim of conducting a high-level assess-ment – if the analyst requires a more in-depth assessment the Trade and Transport Facilitation toolkit can be employed (World Bank, 2012).

There are a number of other toolkits and guides that can be used to guide diagnostics and help inform needs assessments (World Bank, 2013). The World Bank’s Trade Corridor Management Toolkit aims to assist policymakers and development pro-fessionals in improving trade and transport corri-dor performance and to guide them in identifying constraints and improvement measures. Trade

and transport corridors are complex and multi-faceted and each corridor is unique: “a bundle of transport and logistics infrastructure and services coordinated by a national or regional institution to facilitate trade and transport flows between centres of economic activity and international trade gateways” (World Bank, 2012). The corridor approach attempts to prioritize investments and maximize returns to scale. The toolkit includes 13 modules and a range of instruments to diagnose, measure and design interventions to improve cor-ridor performance and assess impact. It provides guidelines to assist in: corridor monitoring-defin-ing core indicators (e.g. on cost, time, reliability, flexibility, safety and security⁹) of performance of trade corridors; identifying measures that can be taken to improve corridor performance; and corri-dor context-describing the trade facilitation agree-ment and institutional issues that impact corridors.

It is intended to be a comprehensive, holistic and

“live” toolkit that allows for easy updating based on existing and new knowledge on how to design, implement and assess trade and transport corridor projects and programmes.

The World Bank’s Border Management Moderni-zation Toolkit provides practical advice on how to develop a strong business case for reform and how to design and implement comprehensive border modernization programmes in developing coun-tries (World Bank, 2011). More specialized diagnos-tic tools include the World Customs Organization Columbus Programme on customs (Aid for SAFE Trade). The aim of the Columbus Programme is the full implementation of the SAFE Framework of Standards, and other World Customs Organization conventions and instruments, as well as best prac-tices in the area of customs administration. The first phase of the programme includes a compre-hensive diagnostic needs assessment of the cus-toms administration based on the World Cuscus-toms Organization’s diagnostic framework tool, produc-ing a diagnostic report includproduc-ing situational anal-ysis, gap analysis and the recommended way

for-9 Time (time taken to go through each component and the length of the corridor); cost (cost to go through each component and the whole corridor); reliability (variation in time and cost); flexibility (different combinations of cost and time available); security (security of goods and safety of the system).

ward to feed into the planning stage. During the planning stage, action plans and project proposals are developed and the business case is made and submitted to stakeholders and potential develop-ment partners. The World Bank has also developed a Freight Transport Toolkit, and others such as the Port Reform Toolkit.

Corridor diagnostic studies and border audits:

These identify and analyse corridor transit and transport costs and delays, including physical impediments, process constraints and non-tar-iff barriers such as institutional and regulatory constraints (Turner et al., 2010a and 2010b). They assess current and forecasted trade and traffic volumes and recommend and prioritize potential options for removing barriers. Examples include the Corridor Diagnostic Study of the Northern and Central Corridors of East Africa and the Northern Corridor Baseline Border Assessment. The Corridor Diagnostic Studyis an extensive in-depth study that provides detailed corridor diagnostics (cover-ing infrastructure, trade and transport facilitation, etc.) and measures corridor performance (Nathans, 2011). It identifies key bottlenecks, measures cost and time of different transport modalities, and includes impact assessments and trade and traffic forecasts. The study recommends strategies and projects for improving corridor performance. The Corridor Diagnostic Study also attempts to prior-itize projects using the following criteria: estimated impact on corridor performance (price, time and reliability); estimated economic impact (internal rate of return); readiness for implementation in the short term. The study’s diagnostic audit employs the software and audit methodology FastPath (a transport logistics diagnostic tool) to measure per-formance (time, cost, reliability, etc.) and identify bottlenecks and potential solutions.¹⁰

10 “FastPath is a proprietary diagnostic tool developed in a partnership between USAID and Nathan Associates to analyse trans-port infrastructure and operational inefficiencies in the transtrans-port/

logistics chains serving import and export traffic. FastPath provides a quantitative basis for monitoring corridor performance. The audit methodology consists of surveys and questionnaires to identify bottlenecks and appropriate improvements to freight corridors”

(Nathans, 2011).

United Nations Development Programme (UNDP) Aid for Trade needs assessment guide:

The guide is designed to assist those conducting needs assessments to ultimately “identify a set of policy recommendations and technical assistance needs aimed at improving the contribution of trade to human development and poverty reduc-tion” (UNDP, 2008). The main elements of the anal-ysis are as follows: 1) review current investment and trade policies and their linkages with eco-nomic growth and human development; 2) assess the country’s business environment and invest-ment climate; 3) analyse selected existing trade policies and agreements and those under nego-tiation (ex ante) for economic growth,

employ-ment, equity and poverty, policy space and public sector capacity implications; 4) review economic and export performance as well as any specific constraints that the country’s exports face in inter-national markets; 5) analyse key economic sectors for expansion of output, productivity, exports, employment and sustainability; 6) consider the impact of the above on poverty, inequality, social exclusion and regional disparities, as well as on policies to address these and related development challenges; 7) provide specific policy recommen-dations and institutional reforms demonstrating ways in which trade might contribute more to economic growth, human development and pov-erty reduction (UNDP, 2008). The guidance notes Figure 3: Stages of the Trade Competitiveness Diagnostic (World Bank, 2012)

• Time: 2-4 weeks

• Activities: desk-based trade data analysis

• Output: trade outcomes note, including hypotheses on key issues to address in the diagnostic

• Time: 2-3 weeks

• Activities: desk-based compilation of quantitative indicators (benchmarking) and review of key policy and strategy documents

• Output: pre-mission note outlining key issues for research, data requirements, interview targets

• Time: 4-6 weeks

• Activities: in-country interviews and data collection

• Output: aide-memoire summarizing main findings and next step

• Time: 4-6 weeks

• Activities: analysis of diagnostic findings and preparation of report outlining potential responses

• Output: final Trade Competitiveness Diagnostic report Stage 1:

Trade outcomes assessment

Stage 2a:

Initial diagnostic analysis and fieldwork preparation

Stage 2b:

Fieldwork

Stage 3:

Analysis and

preparation of final diagnostic

Box 5: Transport observatories (Hallaert and Munro, 2009; World Bank, 2013)

Transport observatories: In order for transport and transit policies, programmes and projects to have a positive impact on costs and delays, there are two important assumptions: 1) the problems are correctly identified, and 2) progress can be measured.

The Africa Transport Policy Programme, SSATP, has developed, and continues to develop, a series of tools as part of a comprehensive toolbox of diagnosis and monitoring instruments under its transport observatory work. The Programme’s transport observatory activities have the dual objective of enhancing and strengthening the content of the toolbox while also providing technical assistance for its actual implementation and use in policy dialogue in African corridors.

that each country needs assessment will differ depending on specific circumstances. Box 7 sets out a useful checklist for analysis.

Value chain analysis: Value chain analysis can help identify the binding constraints to trade and how best to allocate AfT. It typically provides quantitative and qualitative analysis of compet-itiveness from the perspective of an investor,

identifying constraints to competitiveness at the sector, subsector or product level looking at all activities including sourcing, production, packag-ing and delivery (UNIDO,2011; World Bank, 2012).

It can be conducted for selected companies and through a representative sample of companies.

The analysis maps the value chain across the life of a product recording time and costs to identify the areas where the firm, sector, subsector or product Figure 4: Corridor project cycle (World Bank, 2012

Box 6: Collecting data and why? (World Bank, 2012)

Tool Purpose

Logistics benchmarking Trade modelling Freight flow analysis Survey of private sector Sector diagnostic Supply chain analysis Point surveys and travelogues

To compare relative performance

To estimate the potential benefits of integration To map existing movements

To consider firm priorities To benchmark sector performance To identify cost and time bottlenecks To validate check points and stoppages Data sources: Logistics Performance Index, Doing Business and World Economic Forum

is falling behind the competition. It can identify where time and costs need to be decreased to improve competitiveness. It identifies the bottle-necks that apply to sections of the value chain in the areas of, for instance, physical infrastructure, transport, trade facilitation and logistics, etc. The method combines benchmarking and stake-holder consultation.

Growth diagnostics adjusted for trade: The growth diagnostics framework was developed by Hausmann, Rodrik and Velasco (2005) to diagnose the binding constraints to growth and to assist in sequencing reform priorities. This framework can be adjusted for trade and can help identify the key constraints to achieving trade expansion.

The advantage of the approach is that it attempts to identify the most binding constraints to trade and assists in guiding the sequencing of reforms and AfT interventions – by addressing the most binding constraints the impact on trade will be as large as possible. The framework combines various diagnostic tools and uses a relatively simple deci-sion tree approach (see figure 5) to guide a series of questions (see box 8 for examples) to identify the biggest impediments to trade. The first step is to identify the three constraints that are the main impediments to trade followed by a second step to identify specific distortions (i.e. causes) underlying these constraints. The decision tree moves from the problem – e.g. low trade perfor-mance – to isolating some of the key constraints (e.g. access and cost of trade finance) that can be the target of specific interventions. Answering

these questions points to the areas where reform has the biggest impact. Once the most binding constraint has been addressed, the identification process can restart to identify the next most bind-ing constraint. It is a dynamic but relatively simple approach that recognizes that not all needs and constraints can be addressed at the same time and reforms need to be sequenced. As a result, it helps to sequence and prioritize and direct AfT flows. Stakeholder consultation, benchmarks and value chain analysis can be used at each “node” of the decision tree. By combining diagnostic tools this limits potential bias and provides the oppor-tunity to combine the best elements of each tool.

It should be noted that a trade supply chain is

“only as strong as its weakest link”. Determining where the weakest links are and addressing these through targeted development interventions is central to improving trade (World Bank, 2010).

4.1.3 Contents of a proposal and concept